10Y US TREASURY NOTE|PREMIUM[LONG-TERM]YIELD ANALYSIS|PART 2/2"
US10y: Series on Bonds- Sept 20th 2019(7-8 minute read)
For the past couple of month yield curves, particularly the 10 year vs the short term maturities have been a popular topic in the mainstream media, mostly because of the yield curve inversion. This analysis aims to provide a well detailed approach to some of the crucial factors regarding the US Treasuries yield curve. Relatively to part one(linked below as #1), this is a much more complex analysis.
Before I start analysing the yield on the US10 year treasury, addressing some of the criticism from my previous analysis that they are too complex to understand. If it takes me several hours and even days or weeks to notice a pattern, it should take at least 30 mins to properly understand my charts. Most people on this platform have an unrealistic expectation of understanding an unknown method of chart analysing within 30 seconds. In this yield analysis I am utilizing Elliott Waves, Pitchfork Trends, Ichimoku cloud , Harmonic Patterns and EMA/Moving averages in addition to my fundamental approach.
Beginning with this analysis by analysing the pitchfork . It is the most complex and largest part of the analysis. It took me about a month to perfect it and from my thorough understanding, the pitchfork base formed after the mild early 90's recession(w). You can see my initial sketch for this analysis here: ibb.co/qY3M81s. To my credit, the same pattern can be observed after the FED rates breakout from bullish cone in my previous analysis on the cycles of FED rates(linked as #2). It is hard to understand the yield curve without a through understand of monetary policy. I will get back to this point on the pitchfork later in the conclusions.
After the dot.com bubble, a bullish triangle( wedge ) formed in the US10Y. This pattern lasted until the real beginning of the recovery in 2012, after the financial crisis of 08'. At the same time it formed the bottom in yields labelled as e(z), which still stands as the main support. Since the recovery, thanks to Trump's tax reform, the yields managed to make a top close to the long-term resistance ~3.3% in late 2018. However, there was a hard rejection near the 200 monthly MA and the pitchfork median. Persistently, since the early 90's, I noticed that the 100 Monthly EMA (blue line) has been the primary resistance, in addition to the ichimoku cloud. On the bearish side in yields, it is important to emphasize here the recent yield curve inversion.
The significance of the latest inversion is that is that it has predicted the previous 6 recessions. Now obviously, this pattern may not occur again since we are at such low rates anyways. Personally, I do not see the yield curve as the factor foreshadowing the next recession, it is more of a symptom of a recession. The actual issues that are cooling off the global economy which obviously has a major impact on the US economy, are the downtrend in trade caused by the trade war, Brexit and the economic pessimism in the Euro Zone. I will not discuss these factors in this analysis(you can read about them in my previous posts).
To conclude this analysis on the US 10 year treasury note; without a trade deal, it simply illogical to be long in this market. In addition to the drop in yields(Where's the positive correlation kicking in??), with the recent earnings miss from Fedex (FDX) and the poor performance of the transportation sectors and the rise of defensive sectors(XLU) (XLI-Linked as #3); it is very surprising that some of the cyclical equities haven't taken a major bearish hit yet. These are the fundamental factors necessary for a cycle extension and a healthier economy.
In case a recession happens and that is obviously inevitable(to FED's/ECB's surprise), from this analysis after the 10 year note breaks the current support at e(z)~1.3-1.5%, several bottom supports from the pitchfork can be observed. The US10Y is currently in a Bearish Rectangle. Contrary to the negative yields that have occured in a good number of the OECD economies, in my opinion the US yields should follow the drawn pitchfork and form a bottom close to 0, but not necessarily cross the line and turn negative in the medium term. This concludes the two part analysis on the US 10 year Treasury note.
Hope that anyone reading this post found it useful and enjoyed it!
|Step_Ahead_oftheMarket|
P.s. Would appreciate some feedback charts or simple comments expressing your opinion on the bond market, thanks!
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up or follow is greatly appreciated!
Some of my popular analysis relevant to the bond market:
1. Part one- ZB1! US 10 Year Treasury note Price analysis: tradingview.com/chart/ZN1!/oaxvgWTw-10Y-US-TREASURY-NOTE-PREMIUM-LONG-TERM-PRICE-ANALYSIS-PART-1-2/
2. FED Rates SuperCycle Analysis: tradingview.com/chart/FEDFUNDS/H2iTE7ig-RECESSION-IMPENDING-PART2-FED-RATES-SUPERCYCLE-PREMIUM-ANALYSIS/
3. XLI- US Industrials: tradingview.com/chart/XLI/BJZMjxLn-EPISODE-5-11-US-INDUSTRIALS-BULLISH-CHANNEL-STRUCTURAL-XLI-TA/
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
For the past couple of month yield curves, particularly the 10 year vs the short term maturities have been a popular topic in the mainstream media, mostly because of the yield curve inversion. This analysis aims to provide a well detailed approach to some of the crucial factors regarding the US Treasuries yield curve. Relatively to part one(linked below as #1), this is a much more complex analysis.
Before I start analysing the yield on the US10 year treasury, addressing some of the criticism from my previous analysis that they are too complex to understand. If it takes me several hours and even days or weeks to notice a pattern, it should take at least 30 mins to properly understand my charts. Most people on this platform have an unrealistic expectation of understanding an unknown method of chart analysing within 30 seconds. In this yield analysis I am utilizing Elliott Waves, Pitchfork Trends, Ichimoku cloud , Harmonic Patterns and EMA/Moving averages in addition to my fundamental approach.
Beginning with this analysis by analysing the pitchfork . It is the most complex and largest part of the analysis. It took me about a month to perfect it and from my thorough understanding, the pitchfork base formed after the mild early 90's recession(w). You can see my initial sketch for this analysis here: ibb.co/qY3M81s. To my credit, the same pattern can be observed after the FED rates breakout from bullish cone in my previous analysis on the cycles of FED rates(linked as #2). It is hard to understand the yield curve without a through understand of monetary policy. I will get back to this point on the pitchfork later in the conclusions.
After the dot.com bubble, a bullish triangle( wedge ) formed in the US10Y. This pattern lasted until the real beginning of the recovery in 2012, after the financial crisis of 08'. At the same time it formed the bottom in yields labelled as e(z), which still stands as the main support. Since the recovery, thanks to Trump's tax reform, the yields managed to make a top close to the long-term resistance ~3.3% in late 2018. However, there was a hard rejection near the 200 monthly MA and the pitchfork median. Persistently, since the early 90's, I noticed that the 100 Monthly EMA (blue line) has been the primary resistance, in addition to the ichimoku cloud. On the bearish side in yields, it is important to emphasize here the recent yield curve inversion.
To conclude this analysis on the US 10 year treasury note; without a trade deal, it simply illogical to be long in this market. In addition to the drop in yields(Where's the positive correlation kicking in??), with the recent earnings miss from Fedex (FDX) and the poor performance of the transportation sectors and the rise of defensive sectors(XLU) (XLI-Linked as #3); it is very surprising that some of the cyclical equities haven't taken a major bearish hit yet. These are the fundamental factors necessary for a cycle extension and a healthier economy.
In case a recession happens and that is obviously inevitable(to FED's/ECB's surprise), from this analysis after the 10 year note breaks the current support at e(z)~1.3-1.5%, several bottom supports from the pitchfork can be observed. The US10Y is currently in a Bearish Rectangle. Contrary to the negative yields that have occured in a good number of the OECD economies, in my opinion the US yields should follow the drawn pitchfork and form a bottom close to 0, but not necessarily cross the line and turn negative in the medium term. This concludes the two part analysis on the US 10 year Treasury note.
Hope that anyone reading this post found it useful and enjoyed it!
|Step_Ahead_oftheMarket|
P.s. Would appreciate some feedback charts or simple comments expressing your opinion on the bond market, thanks!
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up or follow is greatly appreciated!
Some of my popular analysis relevant to the bond market:
1. Part one- ZB1! US 10 Year Treasury note Price analysis: tradingview.com/chart/ZN1!/oaxvgWTw-10Y-US-TREASURY-NOTE-PREMIUM-LONG-TERM-PRICE-ANALYSIS-PART-1-2/
2. FED Rates SuperCycle Analysis: tradingview.com/chart/FEDFUNDS/H2iTE7ig-RECESSION-IMPENDING-PART2-FED-RATES-SUPERCYCLE-PREMIUM-ANALYSIS/
3. XLI- US Industrials: tradingview.com/chart/XLI/BJZMjxLn-EPISODE-5-11-US-INDUSTRIALS-BULLISH-CHANNEL-STRUCTURAL-XLI-TA/
Full Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Comment:
Nonfarm payrolls 266k, expected consensus 180k. That's close to 50% surprise. Unbelievable numbers for November. Wages still slacking. Overall, this in a way is a good thing as more people are employed, furthermore boosting consumer confidence. Treasuries should see sell-off and potentially targeting that 2% strong resistance zone.
This figure coincides with the SPX breakout in November. It was also one of the best monthly performances on record. Perhaps one of the reasons is that trade fears were beginning to cool off.
This figure will set the direction for the 4 weeks left that we have of 2019. Nevertheless, going into 2020, things won't be as optimistic as they are now.
-Step_ahead_ofthemarket-
This figure coincides with the SPX breakout in November. It was also one of the best monthly performances on record. Perhaps one of the reasons is that trade fears were beginning to cool off.
This figure will set the direction for the 4 weeks left that we have of 2019. Nevertheless, going into 2020, things won't be as optimistic as they are now.
-Step_ahead_ofthemarket-
Comment:
Just a thought provoking update:
Question is, what's the absolute potential upside for the SPX in 2020. Best scenario, a deal gets done phase 1 and even if we have 2 more rate cuts to 1%, it would be +10-15%, to ¬3500ish. Even this is a stretch. But there are not sellers either, because the downside is limited mostly by QE. Meaning, expectations should be that market will be sluggish for the next 1-1.5 years before something major occurs.
-Step_ahead_ofthemarket-
Question is, what's the absolute potential upside for the SPX in 2020. Best scenario, a deal gets done phase 1 and even if we have 2 more rate cuts to 1%, it would be +10-15%, to ¬3500ish. Even this is a stretch. But there are not sellers either, because the downside is limited mostly by QE. Meaning, expectations should be that market will be sluggish for the next 1-1.5 years before something major occurs.
-Step_ahead_ofthemarket-
Comment:
Short update; Let's see if QE-4 actually happens.
Short update; Let's see if QE-4 actually happens.
Related Ideas
A zoomed in version of the last part of the chart. I will try to update this analysis whenever I have time or if something major occurs.
-Step_ahead_ofthemarket-